ITAT Mumbai Upholds 0.2% Profit Addition on Bogus Purchases — Consistency Doctrine Prevails Over Revenue's Higher GP Claim

Case Overview

Case Name: ITO Vs Sundha Steels Pvt. Ltd.
Forum: Income Tax Appellate Tribunal, Mumbai
Assessment Year: 2009-10
Order Date: 20/04/2026

In a significant ruling reinforcing the principle of judicial consistency in bogus purchase matters, the Mumbai Bench of the Income Tax Appellate Tribunal settled a long-standing dispute involving alleged bogus purchases worth approximately ₹27.50 crore. The Tribunal upheld the CIT(A)'s direction to cap the profit addition at 0.2% of the disputed purchase value, firmly rejecting the Revenue's insistence on applying a higher gross profit rate of 1.23%. The final addition sustained stood at approximately ₹5,50,070/-, a fraction of the ₹33,82,928/- originally assessed.

Background and Facts of the Case

Sundha Steels Pvt. Ltd. is a company engaged in the trading of ferrous and non-ferrous metals. For Assessment Year 2009-10, the assessee originally filed its return of income on 30.09.2009, declaring total income of ₹11,99,682/-. A regular scrutiny assessment under Section 143(3) of the Income-tax Act, 1961 was completed on 29.12.2011, accepting the returned income as filed.

Subsequently, the Assessing Officer received specific intelligence from the Investigation Wing suggesting that certain purchases had been made through accommodation entry operators — commonly referred to as hawala dealers. Acting on this information, the Assessing Officer recorded reasons to believe that income had escaped assessment and issued a notice under Section 148 of the Act on 02.03.2015. The assessee responded by filing its return, and reassessment proceedings under Section 147 of the Act were completed on 21.03.2016, revising the total income to ₹45,82,610/-.

How the Addition Was Framed by the Assessing Officer

During reassessment, the Assessing Officer identified the assessee as having made bogus purchases from various entities. To estimate the taxable profit embedded in such transactions, the AO computed the average gross profit rate over the preceding four years, arriving at 1.23%. Applying this rate to total disputed purchases of ₹27,50,34,816/-, the AO arrived at an addition of ₹33,82,928/- and incorporated the same into the assessed income.

Proceedings Before CIT(A)

On appeal, the CIT(A) examined the matter in light of precedents directly involving the same assessee. It was brought to the CIT(A)'s notice that the Co-ordinate Bench of ITAT Mumbai had already adjudicated an identical issue in the assessee's own case for AY 2008-09 and AY 2011-12, consistently holding that the addition on account of alleged bogus purchases must be restricted to the profit element embedded therein, quantified at 0.2% of the total bogus purchase value.

Furthermore, it was established that the Revenue had challenged those ITAT orders before the Hon'ble High Court of Bombay, which dismissed the Revenue's appeals — effectively conferring finality upon those rulings.

CIT(A)'s Findings

The CIT(A) reproduced and relied upon a parallel order passed by the Addl./Jt.CIT (Appeals)-2, Siliguri dated 20.01.2025, which had addressed AY 2008-09 in the assessee's case and reduced the addition to 0.2% of bogus purchases on the same reasoning. That order had in turn been affirmed by the ITAT Mumbai in ITA No. 1756/Mum/2024 vide order dated 21.04.2025. The CIT(A) concluded: